If there is anything that has been a safe asset class during this period of turmoil following the Russia-Ukraine war, it is gold. This has made the Reserve Bank of India (RBI) nearly double its gold purchase to 65 tonnes in FY22 as part of its asset diversification policy.

With this, the RBI’s total gold holding has climbed to 760.42 tonnes, the central bank said in its annual report for 2021-22.

For the nine-month period between June 2020 and March 2021, the RBI had bought 33.9 tonnes of gold. 

Due to increase in the price of gold, additional purchases and depreciation of rupee against the dollar, the value of RBI’s gold holdings increased 30% to Rs 3.22 lakh crore. Of this, gold valued at Rs 1.25 lakh crore is held as an asset of RBI’s issue department. Gold, including gold deposit, is valued at Rs 1.97 lakh crore and held as an asset of the banking department. 

"The observations across the various phases of the different financial cycles imply that in addition to providing a greater risk hedge to the US dollar, gold’s performance as a safe asset among other asset classes has also improved in the recent phases of financial cycles," RBI said in its annual report for 2021-22.

RBI’s domestic assets constituted 28.22% while the foreign currency assets and gold (including gold deposit and gold held in India) constituted 71.78% of total assets as on 31 March 2022 as against 26.42% and 73.58%, respectively, a year ago.

As on 31 March 2022, RBI held total gold of 760.42 metric tonnes (including gold deposits of 11.08 metric tonnes) compared to 695.31 metric tonnes a year ago. "The increase is on account of addition of 65.11 metric tonnes of gold during the year," RBI said.

While 453.52 metric tonnes of gold is held overseas with the Bank of England and the Bank of International Settlements (BIS), 295.82 metric tonnes of gold is held locally.

Gold accounted for 7% of the total foreign exchange reserves at the end of March 2022, up from about 5.88% six months preceding that.

“Gold acts as a diversifier and is a vehicle to mitigate losses in times of market stress. Gold has delivered positive returns over the long run, often outperforming other major asset classes," RBI said in the annual report.

Across the different financial cycles, gold provides a greater risk hedge to the US dollar. Gold’s performance as a safe asset among other asset classes has also improved in the recent phases of financial cycles, RBI said.